Huge challenges for the new HLL CEO

December 17, 2005 03:01 IST

After a terrible 2004 in which sales fell and margins crashed, Hindustan Lever Ltd should close 2005 with a better set of numbers. The September quarter saw strong topline growth of 13.8 percent y-o-y with the recovery visible across categories.

The FMCG major, which was struggling to hold on to market share in key categories such as detergents and hair care, has managed to grow its topline, though margins continue to be under pressure.

The foods business, which had all but disintegrated, is seeing some success, mainly in the beverages category where the company is growing market share in both teas and coffee. However, for Doug Baillie, who will take over as CEO of HLL in March 2006, the challenges remain.

HLL may be in better shape financially than it was a couple of years back and the economic environment too is undoubtedly more benign. Nonetheless, competition remains as keen as ever as is evident from the management's inability to grow marketshare significantly.

The customer's wallet share of FMCG products may increase, but given the numerous choices available today, it will not be easy for HLL to win back share. The phenomenal reach and fragmentation of media has made it easier for smaller companies to reach out more easily to their target audience.

New brand introductions, however, have failed. What has been of considerable concern is HLL's inability to grow the foods business -- sales of processed foods dropped from Rs 791crore in CY01 to Rs 285 crore for CY04 with losses of Rs 82 crore.

The ice-cream venture will make money for the first time in ten years. HLL's Core brand strategy outlined in 2001 envisaged the rationalisation of brands, followed by volume increases and then by profits. Till date there has been some volume growth, operating margins in Q3FY05 were down 130 basis points at 13.7 percent.

It is therefore, somewhat surprising that the company has chosen to reshuffle the top management at this juncture. It may be possible that Arun Adhikari, managing director, HPC, is being groomed for bigger things in India with a stint in Japan.

Other multinationals have been known to do this in the past. As Harish Manwani, non-executive chairman of Hindustan Lever, told reporters: "After the exposure in Japan, Arun will be a much better manager and leader. He could come back with a bigger role."